AMENDED AS OF JUNE 16, 2003
BY THE BOARD OF DIRECTORS
2001 INCENTIVE STOCK OPTION PLAN
FOR
U. S. ENERGY CORP.
ARTICLE I
PURPOSE
This Incentive Stock Option Plan (hereafter the "Plan") of U. S. Energy Corp.
(the "Company") for executive and other key persons and employees, is intended
to advance the Company by providing an incentive to obtain a proprietary
interest to those persons who have management and key employment
responsibilities, and to others who serve the Company.
ARTICLE II
DEFINITIONS
For Plan purposes, except where the context clearly indicates otherwise, the
following terms shall have the meanings set forth:
a. "Board" shall mean the Company's Board of Directors.
b. "Code" shall mean the Internal Revenue Code of 1986 as amended from time
to time, and the rules and regulations promulgated thereunder.
c. "Committee" shall mean the Compensation Committee, or such other
committee of the Board designated by the Board to administer the Plan. Until
such time as the Board may designate such committee, this Plan shall be
administered by the Board. The Committee shall be composed of not less than two
persons appointed by the Board; Committee members also may be members of the
Board. Options also may be granted by the Board. No member of the Committee or
of the Board shall vote on issuance of an Incentive Stock Option to himself or
herself.
d. "Common Shares" shall mean shares of the Company's Common Stock, or, in
the event that the outstanding Common Shares are hereafter changed into or
exchanged for different shares or securities of the Company, such other shares
or securities.
e. "Company" shall mean U. S. Energy Corp., a Wyoming Corporation, and any
parent or subsidiary of such corporation, as the terms "parent" and "subsidiary"
are defined in Sections 425(e) and (f) of the Code.
f. "Fair Market Value" shall mean, with respect to the date a given stock
option is granted or exercised, the average of the highest and lowest reported
sales prices of the Common Shares as reported in any trading market where the
Company then is listed, or if there were no transactions in the Common Shares on
such day, then the last preceding day on which transactions took place. If the
Common Shares of the Company are not traded in any public market, then fair
value may be established by reference to sales of Common Shares by the Company,
or to sales by shareholders of outstanding Common Shares held by them, or to
sales by third parties of outstanding Common Shares which had been owned by
shareholders of record (for example, sales by a trustee in bankruptcy or a
secured creditor or by order of court in domestic relations or probate
proceedings). The above notwithstanding, the Committee may determine the Fair
Market Value in such other manner as it may deem more equitable for Plan
purposes or as is required by applicable laws or regulations. The Committee
always shall take into account and duly consider developments in the Company
since the date of the sale or sales being used to determine Fair Market Value,
including without limitation material changes in earnings per Common Share,
contracts for new business, and other factors.
g. "Incentive Stock Option" or "ISO" or "Option" shall mean a stock option
issued under the Plan which is intended to meet the terms of Code Section 422A
for qualified options (i.e., a "Qualified Incentive Stock Option").
h. "Optionee" shall mean the person to whom has been granted an Incentive
Stock Option.
i. "Stock Option Agreement" shall mean the agreement between the Company and
the Optionee under which the Optionee may purchase Common Shares.
j. "Ten Percent Shareholder" shall mean an employee who owns ten percent or
more of the Common Shares as such amount is calculated under Code Section
422A(b)(6). Attribution rules under Code Section 425(d) are applicable to
determine whether the ten percent ownership rule is satisfied.
k. "Vesting" and "vested" shall mean the times(s) when options are
exercisable as determined by the Committee (or the Board if no Committee has
been established), subject to the provisions of this Plan.
ARTICLE III
ADMINISTRATION
3.1 The Committee (or the Board, until a Committee is designated) shall
administer the Plan with full power to grant Incentive Stock Options, and
construe and interpret the Plan, establish rules and regulations and perform all
other acts it believes reasonable and proper.
3.2 The determination of those eligible to receive Incentive Stock Options,
and the amount and terms and conditions of such Options shall rest in the sole
discretion of the Committee (or the Board, if no Committee is designated),
subject to the provisions of this Plan. Eligibility and vesting shall be
determined under Article V.
3.3 The Committee may cancel any Incentive Stock Options if an Optionee
conducts herself or himself in a manner which the Committee in good faith
determines to be not in the best interests of the Company, as set forth in
Section 11.7.
3.4 The Board, or the Committee, may correct any defect, supply any
omission, or reconcile any inconsistency in the Plan, or in any granted
Incentive Stock Option, in the manner and to the extent it shall deem necessary
to carry it into effect.
3.5 Any decision made, or action taken, by the Committee or the Board
arising out of or in connection with the interpretation and administration of
the Plan shall be final and conclusive.
3.6 Meetings of the Committee shall be held at such times and places as
shall be determined by the Committee. Notice of meetings shall be made in the
same manner as required for Board meetings under the Bylaws. A majority of the
members of the Committee shall constitute a quorum for the transaction of
business, and the vote of a majority of those members present shall decide any
question brought before that meeting. In addition, the Committee may take any
action otherwise proper under the Plan by the signed affirmative vote, taken
without an actual meeting, of all members. All proceedings of the Committee
shall be evidenced by complete and detailed minutes, signed by the Committee
members.
3.7 No member of the Committee shall be liable for any act or omission of
any other member of the Committee or for any act or omission on her or his own
part, including, but not limited to, the exercise of any power or discretion
given to her or him under the Plan, except those resulting from her or his own
bad faith, gross negligence, or willful misconduct.
3.8 The Plan shall always be administered in such a manner as to permit the
Options to qualify as "incentive stock options" under Section 422A of the Code.
3.9 Management of the Company shall supply full and timely information to
the Committee on all matters relating to eligible employees, their duties and
performance, and current information on death, retirement and disability or
other termination of employment of Optionees, and such other pertinent
information as the Committee may require. The Company shall furnish the
Committee with clerical and other assistance as necessary in performance of its
duties hereunder.
ARTICLE IV
NUMBER OF RESERVED SHARES
4.1 RESERVED SHARES. The total number of Common Shares of the Company
available for issuance under the Plan shall be 3,000,000 shares, subject to
adjustment under Article VII. The reserved shares may be either authorized but
unissued, or previously issued and subsequently reacquired.
4.2 SHARES UNDER EXPIRED OR TERMINATED OPTIONS. If an Incentive Stock Option
or portion thereof shall expire or terminate for any reason without having been
exercised in full, the unpurchased shares shall be available for future grants
of Incentive Stock Options.
ARTICLE V
ELIGIBILITY, VESTING AND ALLOCATION
5.1 ELIGIBILITY. Qualified Incentive Stock Options may be granted to
officers and employees of the Company and of the Company's parent, subsidiary or
affiliate companies, as determined by the Committee.
The Compensation Committee shall determine the length of service required for
each Optionee to be eligible to participate in this Plan.
5.2 VESTING. Subject to Section 6.8, Incentive Stock Options generally shall
be exercisable at the rates established by the Committee.
5.3 ALLOCATION. The number of Incentive Stock Options to be issued in any
calendar year shall be in the discretion of the Committee (or the Board if no
Committee has been established).
ARTICLE VI
TERMS AND CONDITIONS
6.1 FORM OF OPTION AGREEMENT. All Incentive Stock Options shall be evidenced
by agreements in the form of Attachment A hereto, or in such other form as may
be duly approved pursuant to this Plan. Any such other form shall be subject to
applicable provisions of the Plan, and such other provisions as the Committee
may adopt, but always shall include the provisions set forth in Sections 6.2
through 6.10 below.
6.2 PRICE. The option price per share for Qualified Incentive Stock Options
shall be equal to 100% of the Fair Market Value of a Common Share on the grant
date. The price at which shares may be purchased on exercise of an Incentive
Stock Option by a Ten Percent Shareholder shall be not less than 110 percent of
the Fair Market Value on the grant date.
6.3 TIME OF GRANT. All Incentive Stock Options must be granted within 10
years from the date this Plan is adopted by shareholders. An Incentive Stock
Option will remain exercisable until termination of the Option, even if the Plan
itself has been terminated.
6.4 TIME OF EXERCISE. No Incentive Stock Option granted to any Ten Percent
Shareholder shall be exercisable after the expiration of five years from the
date such is granted. Subject to Article V, the Committee may establish
installment exercise terms for an Incentive Stock Option, such that the Option
becomes fully exercisable over a series of cumulating portions.
If an Optionee shall not, in any given installment period, purchase all the
Common Shares available within such period, such Optionee's right to purchase
any Common Shares not purchased in such installment period shall continue until
the expiration or sooner termination of such Option, unless there is a contrary
provision in the Stock Option Agreement.
6.5 EXERCISE. An Incentive Stock Option shall be exercised by delivery of
(a) a written notice of exercise (in the form of Attachment B hereto) to the
Company specifying the number of Common Shares to be purchased, and (b) payment
of the full price of such Common Shares, as set forth in Section 6.6.
Not less than 100 Common Shares may be purchased at one time unless the number
purchased is the total number at the time available for purchase. Until the
Common Shares represented by an exercised Option are issued to an Optionee, she
or he shall have none of the rights of a shareholder.
6.6 METHOD OF PAYMENT. The purchase price for an Incentive Stock Option or
portion thereof may be paid:
a. In United States dollars by cashier's check, certified check, bank
draft, or money order payable to order of the Company in an amount
equal to the option price; or
b. At the discretion of the Committee, through the delivery of fully paid
and non-assessable Common Shares, with an aggregate Fair Market Value
on the date of the exercise equal to the option price, provided such
tendered shares have been owned by the Optionee for at least one year
prior to such exercise; or
c. By a combination of a. and b.; or
d. In any other lawful consideration approved by the Committee, including
without limitation Promissory notes, salary set-offs, and exchange of
options with higher exercise prices.
The Committee shall determine acceptable methods for tendering Common Shares as
payment upon exercise, and may impose limitations on such use of Common Shares.
6.7 TRANSFERABILITY. Except by will or the laws of descent and distribution
as provided by Section 6.8(c) below, and except for transfers to a Permitted
Transferee, no Option, and no right or interest in any Incentive Stock Option,
shall be assignable or transferable. Transfers to a Permitted Transferee shall
be authorized only if (i) the transfer is a bona fide gift and not payment of
anything to any person, directly or indirectly; (ii) the Optionee receives
nothing of value, directly or indirectly, for the gift; and (iii) the
transferred Options continue to be subject to the identical terms and conditions
as the Options prior to such transfer. A Permitted Transferee means (and shall
be limited to) an Optionee's Family Members: child, stepchild, grandchild,
parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother- or
sister-in-law (including adoptive relationships); anyone sharing the Optionee's
household (but not as a tenant or employee), or a trust or other entity in which
the Optionee and Family Members hold more than 50% of its beneficial or voting
interest. It is intended that the preceding comply with General Instruction
A(l)(a)(5) to Form S-8 adopted by the Securities and Exchange Commission.
6.8 TERMINATION OF EMPLOYMENT, DISABILITY, OR DEATH OF OPTIONEE. If an
Optionee shall cease to be employed by the Company, dies, or become permanently
or totally disabled (within the meaning of Section 22(e)(3) of the Code) while
he or she is holding Options, each Option shall expire as follows:
a. If the Optionee's termination of employment occurs for any reason
except death, disability, or retirement pursuant to a Company approved
retirement policy then in effect, during the first year after grant of
the Option, the Optionee's right to exercise shall terminate to the
extent not theretofore exercised
b. If the Optionee's termination of employment occurs for any reason,
except death or disability, more than 12 months after grant of the
Option, the Optionee shall have the right to exercise the Option for
three months after termination to the extent that it was exercisable
on the date of termination; however, that if the employment of an
Optionee shall terminate, or if a director shall be removed, for
cause, all Options theretofore granted to such Optionee shall, to the
extent not theretofore exercised, terminate forthwith.
c. If at any time after date of the grant, the Optionee (i) retires
pursuant to a Company approved retirement policy then in effect, or
(ii) becomes permanently and totally disabled (within the meaning of
Section 105(b)(4) of the Code), the Option shall become exercisable in
full on the date of such retirement or disability and remain
exercisable for one year.
d. If the Optionee shall die while employed by the Company, the personal
representative or administrator of the Optionee's estate or the
person(s) to whom the Option was validly transferred by personal
representative or administrator, shall have the right to exercise the
Option for one year after death.
No transfer of an Incentive Stock Option by the will of an Optionee, or by the
laws of probate shall be effective to bind the Company unless the Company shall
have been furnished with written notice thereof and an authenticated copy of the
will and/or such other evidence as the Committee may deem necessary to establish
validity of the transfer.
6.9 LEAVES OF ABSENCE. For purposes of the Plan, it shall not be considered
a termination of employment when an Optionee is placed by the Company on
military or sick leave or other type of leave of absence considered as
continuing intact the employment relationship. In case of a leave of absence
other than military leave, the employment relationship shall be continued until
the later of the date when such leave equals 90 days or the date when the
Optionee's right to reemployment with the Company shall no longer be guaranteed
by statute or contract.
6. 10 ANNUAL $100,000 LIMIT ON EACH ISO OPTIONEE. Notwithstanding any other
provision of the Plan, the aggregate Fair Market Value of the Common Shares,
determined as of the time such Option is granted, for which any Optionee may be
granted Incentive Stock Options under the Plan shall not exceed $100,000 in any
such same calendar year. The Compensation Committee may reclassify Options from
unqualified to qualified status under the Code from time to time to maximize the
tax benefits to Optionees.
ARTICLE VII
ADJUSTMENTS ON CHANGES IN CAPITALIZATION
7.1 In the event that the outstanding Common Shares of the Company are
hereafter changed into or exchanged for a different number or kind of shares or
other securities of the Company prompt, proportionate, equitable, lawful, and
adequate adjustment shall be made of the aggregate number and kind of shares
subject to Options which may have been granted, such that the Optionee shall
have the right to purchase such Common Shares as may be issued in exchange for
those purchasable on exercise of the Options had such merger, consolidation,
other reorganization, recapitalization, reclassification, combination of shares,
stock split-up, or stock dividend not taken place.
7.2 The foregoing adjustments and their manner of application shall be
determined solely by the Committee (or by the Board, if there be no committee).
No fractional shares shall be issued under the Plan on account of any such
adjustments.
ARTICLE VIII
MERGER OR CONSOLIDATION
8.0 If the Company shall be a party to a binding agreement to any merger,
consolidation, or reorganization of which the Company shall not be the survivor,
each outstanding Option shall pertain and apply to the securities which a
shareholder of the Company would be entitled to receive pursuant to such merger,
consolidation, or reorganization. Every Optionee shall have the right
immediately prior to taking effect of such a transaction, to exercise the Option
to the extent not exercised by such date. If Options are not exercised by such
date, the unexercised Options shall be deemed exchanged for new options to
purchase common shares in the successor company, adjusted as necessary (as to
price and/or number of shares) to preserve the Optionee's opportunity to buy
stock in the successor company, in the proportion that the Common Shares
(including Options as if they had been exercised before the transaction) bear to
the total outstanding securities of the successor company.
ARTICLE IX
AMENDMENT AND TERMINATION OF PLAN
9.1 The Board, without further approval of the shareholders, and at any time
and from time to time, may suspend or terminate the Plan in whole or in part or
amend it in such respects as the Board deems appropriate and in the best
interest of the Company; provided, however, that no such amendment shall be made
which would, without approval of the shareholders:
a. Materially modify the eligibility requirements for receiving Options;
b. Increase the total number of Common Shares which may be issued
pursuant to Options, except in accordance with Article VII;
c. Reduce the minimum exercise price per Common Share, except in
accordance with Article VII;
d. Extend the period of granting Options; or
e. Materially modify in any other way the benefits to Optionees.
9.2 No amendment, suspension, or termination of this Plan shall, without the
Optionee's consent, alter or impair any of the rights or obligations under
issued Options.
9.3 The Board may amend the Plan, subject to the limitations cited above, as
may be necessary to permit the granting of Incentive Stock Options meeting the
requirements of the Code.
9.4 No Option may be granted during any suspension of the Plan or after
termination of the Plan.
ARTICLE X
REGULATIONS
10.0 The obligation of the Company to issue Common Shares for exercised
Incentive Stock Options shall be subject to laws and regulations, including
without limitation (i) for citizens of the United States, the Securities Act of
1933 and state securities laws, (ii) for citizens of Canada and other
jurisdictions, the securities laws of Canada and other jurisdictions, and (iii)
if the Company is listed, the regulations of the NASDAQ market system, or the
requirements of other exchanges or quotation markets.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Option under the Plan, and the grant thereof under the Plan shall not
be construed as giving any person the right to be employed by or retained as a
consultant for the Company, or to continue any such employment or consulting
status.
11.2 PLAN EXPENSES. The Company will pay all expenses of administering this
Plan.
11.3 USE OF EXERCISE PROCEEDS. Money received from Optionees on the exercise
of Options shall be used for the general corporate purposes of the Company.
11.4 FOREIGN NATIONALS. Without amending the Plan, grants may be made to
employees of the Company who are foreign nationals or employed outside the
United States, or both, on terms and conditions consistent with the Plan's
purpose but different from those specified in the Plan as may be necessary or
desirable to create equitable opportunities, given differences in tax laws.
11.5 INDEMNIFICATION. In addition to such other rights of indemnification as
they may have as members of the Board or the Committee, the members of the
Committee shall be indemnified by the Company against all costs and expenses
reasonably incurred by them in connection with any action, suit, or proceeding
to which they or any of them may be party by reason of any action taken or
failure to act under or in connection with the Plan or any Option granted
thereunder, and against all amounts paid by them in settlement thereof (provided
such settlement is approved by independent legal counsel selected by the
Company) or paid by them in satisfaction of a judgment in any such action, suit,
or proceeding, except a judgment based upon a finding of bad faith; provided
that upon the institution of any such action, suit, or proceeding, a Committee
member shall, in writing, give the Company notice thereof and an opportunity, at
its own expense, to handle and defend the same before such member undertakes to
handle and defend it on her or his own behalf.
11.6 SUBSTITUTE OPTIONS. Options may be granted under this Plan from time to
time in substitution for options held by employees of other corporations who
become employees of the Company as the result of a merger or the consolidation
of the employing corporation with the Company or the acquisition by the Company
of the assets of the employing corporation or the acquisition by the Company of
stock of the employing corporation as a result of which it becomes a subsidiary
of the Company.
11.7 FORFEITURE FOR DISHONESTY. Notwithstanding anything to the contrary in
the Plan, if the Committee in good faith finds by a majority vote, after full
consideration of the facts presented on behalf of both the Company and the
Optionee, that the Optionee has been engaged in fraud, embezzlement, theft,
commission of a felony or dishonesty in the course of her or his employment by
the Company or any subsidiary corporation, which damaged the Company or any
subsidiary corporation, or for disclosing trade secrets of the Company or any
subsidiary corporation, the Optionee shall forfeit all unexercised Options. The
decision of the Committee as to the cause of an Optionee's discharge and the
damage done to the Company shall be final. No decision of the Committee,
however, shall affect the finality of the discharge of such Optionee by the
Company or any subsidiary corporation in any manner.
ARTICLE XII
INFORMATION DELIVERY REQUIREMENTS
12.1 In order that the Company complies with its obligations under the
securities laws, an Optionee desiring to exercise his or her options will notify
the Chief Executive Officer or Chief Financial Officer of the Company of his or
her intention, in writing. Such Officer shall direct other officer(s) of the
Company to meet with the individual to deliver and discuss the following
information: If the Company is registered with the SEC, copies of its last
annual report, quarterly report, proxy statement and any Form 8-K reports; If
the Company is not so registered, then copies of the audited financial
statements for the last fiscal year and unaudited interim financial statements;
a summary of current and expected contracts and overall business strategy;
copies of the articles of incorporation and significant business contracts in
place; and copies of debt/credit line documents, and any other document material
to the evaluation of an investment in the Company. Prior to the exercise of the
Option, the Optionee shall acknowledge receipt of the delivered information in
writing.
ARTICLE XIII
DISPOSITION OF STOCK ACQUIRED ON EXERCISE OF AN INCENTIVE STOCK OPTION
13.1 QUALIFYING DISPOSITION. A disposition of Common Stock acquired by
exercise of an ISO, where the disposition occurs after two years from the grant
of the ISO, will qualify the receipt of proceeds from disposition as capital
gains income, provided that at least one year has elapsed between exercise of
the ISO and disposition of the Common Shares.
13.2 DISQUALIFYING DISPOSITION. A disposition of Common Stock acquired by
exercise of an ISO, where the disposition occurs less than two years from the
grant of the ISO, will disqualify the receipt of proceeds from disposition as
capital gains income, such that (a) the receipt of such proceeds will be
recognized as compensation income in the calendar year of disposition, equal to
the difference between the exercise price and the fair market value of the
Common Shares at the time of exercise; and (b) for purposes of calculating
capital gains tax on disposition proceeds, the basis shall equal the exercise
price plus the amount of compensation income recognized.
13.3 SUBJECT TO CHANGE. The foregoing provisions are subject to change in
the Code.
ARTICLE XIV
SHAREHOLDER APPROVAL AND EFFECTIVE DATE
14.0 This Plan is effective as of the date of approval by the Board of
Directors, provided the shareholders approve the plan within 12 months after
that date.
* * * * * * * *
This Incentive Stock Option Plan was presented to the Shareholders of the
Company and approved by the Shareholders on December 7, 2001 and incorporated
into the minutes and books of the Company. Upon ratification by the Board of
Directors on December 7, 2001 the Plan was filed in the Company minute book.
The Board of Directors amended this Plan, consistent with Article IX, on June
16, 2003, and the Amended Plan was filed in the Company Minute Book.
ATTEST: U.S. ENERGY CORP.
/s/ Daniel P. Svilar /s/ Keith G. Larsen
- --------------------------------- -----------------------------------------
Secretary President
ATTACHMENT A TO PLAN
Number of Shares: ______
Date of Grant: ____________, 20___
STOCK OPTION AGREEMENT
Agreement made this day of , , between ("Optionee")
----- ---------- ----- ------------- and U. S.
Energy Corp. (the "Company").
1. GRANT OF OPTION. The Company, pursuant to the provisions of the Company's
Amended 2001 Incentive Stock Option Plan ("Plan"), hereby grants to the
Optionee, subject to the terms and conditions set forth or incorporated herein,
an Option to purchase from the Company all or any part of an aggregate of
Common Shares, at the purchase price of $ per Share. The provisions
of the Plan governing the terms and conditions of the Option granted hereby are
incorporated herein by reference.
In the event of any conflict between this Agreement and the Plan, the Plan shall
control.
2. EXERCISE. This Option shall be exercisable in whole or in part (in
multiples of 100 Shares, unless for the balance of this Option) on or before
..
This Option shall be exercisable by delivery to the Company of a notice of
election to exercise, in the form attached hereto, specifying the number of
Shares to be purchased and accompanied by payment of the full purchase price. A
copy of this Stock Option Agreement shall also be delivered to the Company along
with the notice of election of exercise, for the Company's endorsement of
exercise on Schedule I and return to the Optionee for his or her records.
U. S. ENERGY CORP.
By:------------------------------------
ATTACHMENT B TO PLAN
U. S. Energy Corp.
877 N. 8th W.
Riverton, WY 82501
In accordance with Paragraph 2 of the Stock Option Agreement evidencing the
Option granted to me on , I hereby elect to exercise this Option
-----------------
to the extent of Common Shares, by (circle method used):
---------
1. A cashier's check, certified check, bank draft, or money order payable to
order of the Company in an amount equal to the option price; or
2. Shares I already own; or
3. A combination of 1 and 2: $ cash and shares.
When the certificate for Common Shares which I have elected to purchase has been
issued, please deliver it to me, along with my endorsed Stock Option Agreement,
in the event there remains an unexercised balance of Shares under the Option, at
the following address:
Very truly yours,
Optionee Signature
------------------------------
Print Name:
-------------------------------------
SCHEDULE I
UNEXERCISED ISSUING
DATE SHARES PAYMENT SHARES OFFICER
PURCHASED RECEIVED REMAINING INITIALS